AUD/USD falls below US$0.67

Daily currency update

The Australian dollar is slightly stronger this morning when valued against the Greenback. The Aussie dollar has been under pressure over the last week, despite a strong Australian labour market report for March and the resultant boost in expectations that the RBA may hike rates again as soon as early May. The AUD/USD pair bottomed during the European session at 0.6678, the lowest level since April 12, but quickly rose above 0.6680. For the time being there is no clear direction, and AUD could trade in a relatively broad range of 0.6620/0.6785. Looking at local data, on Friday we saw the April PMI from Australia show the Manufacturing Index at 48.1, below 49.1 in March, and the Service Index at 52.6, up from 48.6 in March, the highest reading since June 2022. Looking at the week ahead and there are no scheduled releases today. On Wednesday all eyes will be on the Australian Bureau of Statistics when they release the quarterly Consumer Price Index (CPI) figures. Wednesday’s CPI report might see some of those revived hawkish bets being wound back as inflation likely eased in the fourth quarter of 2022. The headline rate of CPI reached a three-decade high of 7.8% at the end of 2022 but is expected to have fallen back to 6.9% in the first quarter of 2022. The March print is also due and investors will be watching to see if CPI continued to decline after the sharp drops in January and February, as well as keeping an eye on the core measures, which are only published quarterly. Finally on Friday we will see the release of the Producer Price Index (PPI), also a leading indicator of consumer inflation. Due to Anzac Day public holiday tomorrow there will be no commentary.

Key movers

On Friday strong global PMI data reinforced market views of further policy tightening ahead for the Fed, ECB and BoE, pushing global rates modestly higher. The 2 year yield moved from down about 5 or so basis points to up 1.8 basis points, currently at 4.183%. The 10 year yield is now up 2.1 basis points at 3.566%. Stocks have moved lower with the NASDAQ index down -0.5% and the S&P index down by -0.21%. The Dow industrial average’s down -0.09%. With Fed officials still talking up inflation, stronger data is not the soft landing they are looking for to slow the inflation levels. The market is pricing in a 90% chance of a hike in two weeks and is now pricing in a small chance of another one on June 14. The market has been struggling with the potential for a hard landing recently due to the Fed staying overly tight, but market participants will also have to weigh the chance of the economy breezing through 5% rates. The British pound’s rally against the Greenback has stalled recently, and chances are that the consolidation could continue a while longer before it embarks on a new leg higher. Last week UK core inflation failed to fall as expected last month, holding steady at 6.2% on-year, and surpassing estimates of 6.0%, while UK wage growth surprised on the upside in February. Headline inflation rose faster than expected at 10.1% on-year in February vs the 9.8% expected, and not too far from the four-decade high of 11.1% hit in October. Investors are now fully pricing in a 25-basis point rate hike to 4.25% on May 11 and expect rates to peak at 5% by September. GBP/USD is trading at 1.2439 after printing a low at 1.2367, below the 20-day Exponential Moving Average (EMA). If GBP/USD breaks above 1.2400, it could test the April 19 cycle high at 1.2474, followed by the YTD high at 1.2546.

Expected ranges

• AUD/USD: 0.6600 – 0.6800 ▼
• AUD/EUR: 0.6000 – 0.6200 ▼
• GBP/AUD: 1.8500 – 1.8700 ▲
• AUD/NZD: 1.0800 – 1.1000 ▲
• AUD/CAD: 0.8950 – 0.9150 ▼